nstanbru
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Correct George. "Split" was the wrong word for me to use. We're both actually saying the same thing.
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Fannie Mae and "Multiple Parcels"
- Thread starter Lee Lansford
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Correct George. "Split" was the wrong word for me to use. We're both actually saying the same thing.
Lee Lansford
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Andrei Fin
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I agree with Lee, George, and others that there is no "one size fits all" way to value these properties, you need to look at the market. But what your client is saying, is that in these specific cases they are willing to accept the chance that you may have taken a conservative approach to value because it results in no additional risk to them. This is like the client requesting a desktop appraisal but you insist on giving them a full appraisal. "But how can you appraise a property if you haven't even seen it, you'll be dragged in front of the state board!"
Appraiser's job (besides reflect the market of course) is to provide credible results in light of the scope of work. Nobody is asking for you to mislead the client here. Scope of work, step one, identify the problem. The only reason I am even bothering here is because some appraisers seem to have taken a self-important approach to the scope work.
"Before you start determining your Scope of Work, the first thing you need to determine is who your client is and any other possible intended users. From here you need to know the intended use, type of value (also referred to as the purpose of the assignment), and if you are to provide a current, retrospective or prospective value. Then you can start asking additional questions, such as the relevant characteristics of the property to be appraised" Source: http://www.workingre.com/importance-good-scope-work/
Appraiser's job (besides reflect the market of course) is to provide credible results in light of the scope of work. Nobody is asking for you to mislead the client here. Scope of work, step one, identify the problem. The only reason I am even bothering here is because some appraisers seem to have taken a self-important approach to the scope work.
"Before you start determining your Scope of Work, the first thing you need to determine is who your client is and any other possible intended users. From here you need to know the intended use, type of value (also referred to as the purpose of the assignment), and if you are to provide a current, retrospective or prospective value. Then you can start asking additional questions, such as the relevant characteristics of the property to be appraised" Source: http://www.workingre.com/importance-good-scope-work/
George Hatch
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Agreed - answer the questions they're asking. But don't allow a dumb question to stand as if that's the only possibility. These borrowers are not intended users but it still doesn't make any sense to give them a reason to allege that you undervalued their "subject" as a result of the lender taking a conservative approach to their underwriting. If I can do both then it doesn't cost me anything to cover my own rear end.
If it is an assemblage and the two individual parcels do have different HBU/as improved then that's the way I depict it in my appraisal report. The valuation comes after the problem identification.
If it is an assemblage and the two individual parcels do have different HBU/as improved then that's the way I depict it in my appraisal report. The valuation comes after the problem identification.
Michigan CG
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We have THREE obvious issues with this situation and a few people who will not acknowledge what is acceptable appraisal practice.
FIRST: If one is appraising two parcels, one developed and one not developed AND there is a demand for vacant land that deems the Highest and Best Use of the vacant parcel to be for development then we have a Highest and Best Use issue. If the improvements on the improved parcel contribute value and are deemed to be the Highest and Best Use AND the vacant parcel has a SUPPORTED Highest and Best Use of being improved then what box does the Appraiser check when valuing these two parcels together?
The improved parcel would be in its Highest and Best Use but the vacant parcel would NOT be in its highest and Best Use. What box are the people in the minority on this issue checking?
SECOND: If the appraiser is arguing that the two parcels are acting as one economic unit then we have a different problem. There is an active thread about two 2.5-acre parcels being valued together as one where one parcel is improved and the other is not. The lender (rightfully) is telling the appraiser that they should not include the second unimproved parcel in the appraisal.
We have a value problem here. Taking the 2.5-acre example in my world that 2.5 acres is worth about $40,000, so two of them are worth about $80,000. The five acres, as ONE economic unit is worth $60-$65,000. For the people who are in the minority in this tread do we not have a problem with this as the land value goes down as one economic unit by about $15k-$20k.
Now apply this math to places where land values are significantly higher and there is some real money (not that $20k is not real money).
THIRD: For the minority of the people in this thread you might have a reporting problem. Are you reporting the land value of the five total acres at $60,000 when you are valuing the property OR are you valuing the land at $80,000? The argument is that are acting as one and therefore the value of the one economic unit is $60,000 and not $80,000. It is not even arguable that you can say the land is worth $80k when you are reporting Highest and Best Use as being ONE property with excess or surplus land or whatever you are calling it.
FIRST: If one is appraising two parcels, one developed and one not developed AND there is a demand for vacant land that deems the Highest and Best Use of the vacant parcel to be for development then we have a Highest and Best Use issue. If the improvements on the improved parcel contribute value and are deemed to be the Highest and Best Use AND the vacant parcel has a SUPPORTED Highest and Best Use of being improved then what box does the Appraiser check when valuing these two parcels together?
The improved parcel would be in its Highest and Best Use but the vacant parcel would NOT be in its highest and Best Use. What box are the people in the minority on this issue checking?
SECOND: If the appraiser is arguing that the two parcels are acting as one economic unit then we have a different problem. There is an active thread about two 2.5-acre parcels being valued together as one where one parcel is improved and the other is not. The lender (rightfully) is telling the appraiser that they should not include the second unimproved parcel in the appraisal.
We have a value problem here. Taking the 2.5-acre example in my world that 2.5 acres is worth about $40,000, so two of them are worth about $80,000. The five acres, as ONE economic unit is worth $60-$65,000. For the people who are in the minority in this tread do we not have a problem with this as the land value goes down as one economic unit by about $15k-$20k.
Now apply this math to places where land values are significantly higher and there is some real money (not that $20k is not real money).
THIRD: For the minority of the people in this thread you might have a reporting problem. Are you reporting the land value of the five total acres at $60,000 when you are valuing the property OR are you valuing the land at $80,000? The argument is that are acting as one and therefore the value of the one economic unit is $60,000 and not $80,000. It is not even arguable that you can say the land is worth $80k when you are reporting Highest and Best Use as being ONE property with excess or surplus land or whatever you are calling it.
J Grant
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We have a value problem here. Taking the 2.5-acre example in my world that 2.5 acres is worth about $40,000, so two of them are worth about $80,000. The five acres, as ONE economic unit is worth $60-$65,000. For the people who are in the minority in this tread do we not have a problem with this as the land value goes down as one economic unit by about $15k-$20k.
HBU is not the same as MV - discussed earlier in thread. HBU is established earlier in appraisal as a step. Then appraiser goes on to develop the appraisal and opinion of market value . The probpery may be at its HBU in current form, but not get a high price returned. The market tell us- s a most probable price can be a price that is lower, mid range, or higher. It is whatever is most probable the market would pay for that property within a reasonable open market exposure .
If the market sees 2 parcels conveyed together as a lower price ( thnt either lot alone), then the market value for the two lots conveyed for one price is that lower price as the most probable. The lots singly are worth more, but appraising them singly is a different appraisal problem. As above post 345 , the valuation comes after the problem identification.
Here is what the appraisals would look like,
Appraisal 1: Vacant 2.5 acre lot A , appraisal market value opinion is $40,000
Appraisal 2: vacant 2.5 acre lot B , appraisal -, market value opinion is $40,000
Appraisal 3: Vacant lot A and B conveyed together for one 5 acre parcel of both lots -market value opinion is $80,000 ( and explain why the discount ).
If the best price within reasonable market exposure on the open market for the 2 lots of 5 acres is $60,000, then that is their market value. Market value is the most probable price, that was the most probable price market paid. The fact that each lot alone is worth more needs to be explained and disclosed, but the appraisal problem is for the 2 lots together. Next question : Is the loss attributable to both lots losing value from being sold together, or does one lot take the hit, acting as value in use in order to sell the other ?
The next question goes to typical motivations - why is a seller selling 2 lots together for less, if each lot alone is worth more? Is the seller not well informed? Or is the market really not that strong to buy individual lots ? Or is seller in duress and would rather a quick sale for both get rid of them? Usually, if demand for single lots is strong, a well informed seller would not sell them both together for a steep discount, maybe a small discount ( which is what George Hatch described combo improvements and lots selling for in his research in an appraisal, no discount or small one ) It really depends, each appraisal is market specific, we can not make a rote prediction the 2 sold together always yields a steep discount.
HBU is not the same as MV - discussed earlier in thread. HBU is established earlier in appraisal as a step. Then appraiser goes on to develop the appraisal and opinion of market value . The probpery may be at its HBU in current form, but not get a high price returned. The market tell us- s a most probable price can be a price that is lower, mid range, or higher. It is whatever is most probable the market would pay for that property within a reasonable open market exposure .
If the market sees 2 parcels conveyed together as a lower price ( thnt either lot alone), then the market value for the two lots conveyed for one price is that lower price as the most probable. The lots singly are worth more, but appraising them singly is a different appraisal problem. As above post 345 , the valuation comes after the problem identification.
Here is what the appraisals would look like,
Appraisal 1: Vacant 2.5 acre lot A , appraisal market value opinion is $40,000
Appraisal 2: vacant 2.5 acre lot B , appraisal -, market value opinion is $40,000
Appraisal 3: Vacant lot A and B conveyed together for one 5 acre parcel of both lots -market value opinion is $80,000 ( and explain why the discount ).
If the best price within reasonable market exposure on the open market for the 2 lots of 5 acres is $60,000, then that is their market value. Market value is the most probable price, that was the most probable price market paid. The fact that each lot alone is worth more needs to be explained and disclosed, but the appraisal problem is for the 2 lots together. Next question : Is the loss attributable to both lots losing value from being sold together, or does one lot take the hit, acting as value in use in order to sell the other ?
The next question goes to typical motivations - why is a seller selling 2 lots together for less, if each lot alone is worth more? Is the seller not well informed? Or is the market really not that strong to buy individual lots ? Or is seller in duress and would rather a quick sale for both get rid of them? Usually, if demand for single lots is strong, a well informed seller would not sell them both together for a steep discount, maybe a small discount ( which is what George Hatch described combo improvements and lots selling for in his research in an appraisal, no discount or small one ) It really depends, each appraisal is market specific, we can not make a rote prediction the 2 sold together always yields a steep discount.
Lee Lansford
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On Monday Jan. 6th, APPRAISAL BUZZ will distribute my open letter to Fannie Mae regarding the topic at hand. Also in the works--more on this at another time--are additional efforts to bring this matter to light. Be on the watch.
Mr Rex
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So USPAP decides what lenders can lend on? Is that ever been their job? I guess I missed that in the first few pages. Care to point it out or where else your premise has basis? Or are you suggesting a massive over stepping of "Authoritae"?
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